Obama’s favorite CEO gets GE out from paying any US taxes

posted at 10:55 am on March 25, 2011 by Ed Morrissey

What a coincidence! I’m sure that GE’s ability to generate $14.2 billion in profits, $5.1 billion in the US, and end up getting back $3.2 billion from taxpayers has nothing at all to do with its political connections and favorable tax breaks and loopholes it has pushed through Congress. Oh, wait:

A review of company filings and Congressional records shows that one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.

Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines. But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad with profits that face little foreign taxes and no American taxes as long as the money remains overseas.

Company officials say that these measures are necessary for G.E. to compete against global rivals and that they are acting as responsible citizens. “G.E. is committed to acting with integrity in relation to our tax obligations,” said Anne Eisele, a spokeswoman. “We are committed to complying with tax rules and paying all legally obliged taxes. At the same time, we have a responsibility to our shareholders to legally minimize our costs.”

The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders. While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion.

But critics say the use of so many shelters amounts to corporate welfare, allowing G.E. not just to avoid taxes on profitable overseas lending but also to amass tax credits and write-offs that can be used to reduce taxes on billions of dollars of profit from domestic manufacturing. They say that the assertive tax avoidance of multinationals like G.E. not only shortchanges the Treasury, but also harms the economy by discouraging investment and hiring in the United States.

Hey, no one is better prepared to discuss business taxes than the man who has gamed the system so well that his company doesn’t pay any at all. What’s that old saying — it takes a thief to catch a thief?

This problem started long before Barack Obama came to Washington, or even the Illinois state legislature. The culprit here is not any one person but both parties, who have created a tax code that I’d call Byzantine, except I don’t want to offend the Byzantines with the comparison. When we see one company avoid paying any taxes thanks to tax breaks it helped engineer, that means other companies end up losing in the process. The government doesn’t just structure the code to protect its allies and favored players in markets, it also has to prioritize enforcement, thanks to the impossible task of applying the volumes of tax code to every single entity.

The New York Times’ report treats as ironic the Obama administration’s solution to this issue — lowering the corporate tax rate — but it’s actually the right start. Not only do we need to lower the corporate rate to make it more competitive in the global market, but we need to rid ourselves of the massive, incomprehensible tax code that allows politicians to curry favor and pick winners and losers in the market. We need a flat-rate corporate tax that treats GE the same as it does its competitors, and that doesn’t allow Congress to create back-door subsidies and penalties for innovation and market success. Those reforms should come concurrently with a change to a rational corporate tax rate, not before, after, or in place of.

Does anyone think that Jeffrey Immelt, with his obviously heavy interest in maintaining the status quo, will lead Obama to the kind of reform necessary to make that happen? Unfortunately in real life, thieves are rarely interested in catching other thieves, let alone themselves.

Note: Because I’m sure I’ll get complaints about it, the use of the term “thief” is rhetorical/symbolic only. I have absolutely no doubt that Immelt and GE acted completely within the law to avoid paying any taxes. That’s actually my point.

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